External influences on business activity

• External influences on business activity include:

  • Laws
  • Politics
  • Tech advancements
  • Economic conditions
  • Social factors
  • Environmental pressures etc.
• External factors can influence the business's activities and decisions.
• Privatization: this is the selling of state-owned and controlled businesses to investors in the private sector.
• Nationalisation: the transfer of ownership of privately owned businesses and organisations to the state.
• Arguments for privatisation include:

  • Increased efficiency.
  • Processes performed by the state are usually slow and bureaucratic.
  • Gives responsibility to managers and employees which can be motivating.
  • Allows the business to get finance from private sources (i.e.; the stock market).
  • Important decisions can quickly be taken because decisions will be taken with profit in mind.
• Arguments against privatisation include:

  • Accountability is put on the government.
  • Essential decisions will be made with the society in mind.
  • Privatised businesses can potentially become monopolies.
  • Reduced opportunities for economies of scale.
  • A coherent and coordinated policy can be made for the good of the country. When businesses are too competitive, a clash could lead to incoherent policies.
• Arguments for nationalisation:

  • Prevents monopolies.
  • Economies of scale are possible since all the businesses are lumped together in one large business.
  • It gives the government control over major industries, which may allow them to be more affordable.
• Arguments against nationalisation:

  • Loose opportunities to make money from private sources (i.e.; stock exchange).
  • Governments can be slow and ineffective.
  • Since profit is not the main aim, there will be no incentive to be fast and effective.
• Legal constraints on business activity include:

  • Marketing behaviour
  • Employment practices
  • Competition
  • Location of the business
• In many countries, they have laws in place to protect their workers like:

  • A written employment contract, so the employee knows the working conditions and disciplinary procedures.
  • Minimum wages at which younger workers are employed.
  • Maximum length of a working week.
  • Holiday and pension entitlements.
  • No discrimination against people during the recruitment and selection process.
  • Protection against unfair dismissal.
• Governments have implemented many laws and regulations to ensure employees are given adequate working conditions and feel little to no discomfort at work. Some of the main laws used include:

  • You must give employees adequate breaks and ensure good working temperatures.
  • Adequate washing and cleaning facilities.
  • All factories must have safety equipment and employees must be taught how to use them.
  • Give employees protective gear.
• When a business accepts its moral and legal obligations to all stakeholders, not just shareholders, it is demonstrating corporate social responsibility.
• CSR and accounting practices: It would be considered socially irresponsible for a business to forge or distort accounting information to make the business or its sales look better than it is. These practices of making accounts appear more favourable is called ‘accounting window dressing’.
• CSR and the payment of illegal fines: It is considered socially irresponsible for businesses to give out ‘incentive payments’ to anyone in exchange for favours; whether it be the government, shareholders, etc. Many countries have laws that prevent these ‘incentive payments’, as they can lead to distorted markets.
• CSR and social auditing: Over the years, there has been an increase in the number of businesses that come out with a social audit. This is due to the increasing demands from consumers who wish to see published reports of the business's social impact in a single quarter; although these reports are not required by law, businesses still conduct and publish them.
• A social audit is a document that states the impact a business has had on society.
• A social audit consists of the following:

  • Health and safety records.
  • How often the business participate in local events or charities.
  • Pollution levels.
  • Their CSR goals for the next quarter.
• Advantages of social audits:

  • Improves the business's image, as well as being used as a marketing tool to increase sales.
  • Managers can use social audits to set new targets for social improvement in the next quarter by comparing current targets with some of the best-performing firms.
  • Can help to identify which particular social goals the business is meeting.
• Disadvantages of social audits:

  • Many stakeholders don't seem to care about social audit records.
  • A lot of research and coalition is needed to produce a social audit which can be very time-consuming and expensive for the business.
  • Many consumers do not pay attention to social audits, as most of them just want cheap goods.
• Businesses must consider consumers when making business decisions for the following reasons:

  • It will improve public image
  • The community will be more accepting of change
  • Legal and Regulatory Compliance
• Demographic changes are any changes that affect the population of an area.
• Demographic changes can occur on three levels:

  • On a local level: people moving from villages to towns.
  • On a national level: increase in birth and death rates.
  • On a global level: the increase of globalisation and the free movement of goods and services.
• Demographic changes can include:

  • Women are taking up a larger role in the workforce.
  • An increase in literacy rate means that workers have better qualifications, and can be more flexible.
  • An increase in life expectancy has increased the amount of older people in the workforce.
  • More people are retiring early which means that people have more free time.
• Impact on the businesses from the demographic changes:

  • Change in consumer demand: different consumers demand different things.
  • Change in the structure of the workforce.
• Changes to patterns of employment:

  • More industries relating to tech and service are becoming more relevant.
  • Labor is being replaced with machinery in factories.
  • Part-time employment has become more popular among workers.
  • More flexible working contracts are being established.
  • Women are being included in more industries.